A scene from the Pixar film “Inside Out.” In the past, Disney made its biggest bets on intellectual property, as it did with its acquisition of Pixar. Credit Disney/Pixar______________________________________

Is content still king?

It was Bill Gates of Microsoft who declared it so in 1996, but the proposition has been repeated so often by Disney executives that it could have served as the company’s corporate slogan.

When AT&T announced its plan to take over Time Warner 10 months ago, Disney’s chief executive, Robert A. Iger, said the deal proved yet again that “content is king.”

So Disney’s abrupt strategic shift just two weeks ago sent shock waves through Hollywood, Silicon Valley and the telecommunications industry. The company said it was buying 42 percent of the internet distributor BamTech for $1.6 billion (bringing its stake to 75 percent), creating its own direct-to-consumer streaming service, and severing its lucrative licensing deal with Netflix for Disney-branded content in the United States.

“Is the network — the platform — now most important?” asked Michael Olson, the consumer internet analyst who covers Netflix for Piper Jaffray, when we spoke last week.

In keeping with that philosophy, Disney made its biggest bets on intellectual property, acquiring Pixar ($7 billion), Marvel Entertainment ($4 billion) and Lucasfilm ($4 billion). Those bets have paid off handsomely for shareholders.

Mike Colter, center, in “Marvel’s The Defenders,” a television series streamed by Netflix. Credit Sarah Shatz/Netflix _______________________________

But as internet streaming disrupts channels like cable and broadcast, Disney now appears to have set its sights on distribution — and a potential new revenue source.

There’s no question that the internet generally, and Netflix specifically, upended the traditional content-distribution supply chain and caused profound changes in the entertainment industry. As The New York Times reported this week, Google, Apple and Facebook are moving aggressively into Hollywood’s turf, preparing to spend billions to create original programming, as Amazon did before them.

These technology giants already have huge user bases and open checkbooks. In July, Netflix said that it had achieved a larger-than-expected increase in subscribers, who now total 104 million, and that it was reaching about half of United States households.

“Anyone who wants to compete directly with Netflix or the full spectrum of competitors who are getting into this space had better be ready for a long, hard fight and have very deep pockets,” said Mr. Olson at Piper Jaffray. “They have the money to spend on content, and they already have huge direct-to-consumer user bases and traffic.”

Netflix got where it is today in part by licensing Disney’s popular children’s offerings and Disney- and Pixar-branded films. Neither company has disclosed what Netflix pays for those rights, but analyst estimates range from about $220 million to $300 million a year.

As long as Netflix was primarily a distributor, it posed no threat to Disney, and offered a revenue source to complement Disney’s cable channels and movies. Investors cheered when the licensing deal was announced in 2012. But Netflix went from partner to competitor by spending heavily to create its own programming — especially in the coveted children’s market long dominated by Disney.

Next year Netflix is adding a new animated series based on Dr. Seuss’s “Green Eggs and Ham,” with Ellen DeGeneres as executive producer. It also has a deal with DreamWorks Animation for 300 hours of new children’s programming.

Netflix is competing with Disney on other fronts, too. Netflix said two weeks ago that Shonda Rhimes, the prolific television producer who created hits like “Grey’s Anatomy” and “Scandal,” would move to Netflix after 15 years at Disney’s ABC Studios.

The question remains: Does Disney need Netflix? Disney will be losing substantial licensing revenue, betting that it can build its own direct-to-consumer model, capture the full value of its programming and find a new path to revenue growth as cable channels decline.

And it’s hedging its bet. For now, Disney’s Marvel and “Star Wars” programming remains on Netflix. The most common criticism I heard wasn’t that Disney was trying to create its own direct-to-consumer model, but that it had waited too long.

Still, nearly everyone agreed that if anyone can pull it off, it’s Disney — and only a few others.

“Disney makes a lot of amazing content, and no one can replicate it,” said Doug Creutz, senior media and entertainment analyst at Cowen & Company. “But they’re putting a significant revenue stream at risk. If they succeed, they’ll capture all the revenue, but may accelerate disrupting the cable bundle. And it may not succeed. Fifteen percent of a big number is a lot better than 100 percent of nothing.”

As Mr. Creutz put it in a research note, Disney’s move is putting “a very settled and successful part of the business model” at risk and “more aggressively pushes the traditional content business into terra incognita.”

Mr. Olson agreed. “If anyone can do it from a content perspective, it’s probably them, because of their unique brand awareness,” he said. “But they’re coming from way behind.”

Investors didn’t like the uncertainty, or the prospect of a full-fledged war between Disney and Netflix. Disney stock dropped on the news and this week was trading at about $102 a share, down from $110 at the beginning of August. Netflix shares also dropped from their lofty perch, falling from $182 at the beginning of the month to $167 this week.

But Kevin A. Mayer, Disney’s head of corporate strategy and business development, told me that his company’s move wasn’t a Disney vs. Netflix issue, but just the first step in a long-term growth strategy for Disney. “We can both do really well,” he said. “There’s no zero-sum game here.”

Although it may seem a paradox, Mr. Mayer says he believes Disney’s move into direct-to-consumer distribution — not to mention the tech world’s rush into original programming — demonstrates that “content is everything these days.”

Unlike the old world of cable and broadcast, “the barriers to entry for an over-the-top provider are pretty low,” he said, meaning a provider that distributes content directly to consumers through the internet. “All the consumer is buying is content, not the apparatus to deliver it. Netflix is only as good as its content and its brand. We’re already good at both.” (Netflix officials declined to talk to me for this column.)

In short, from Disney’s perspective, Mr. Mayer said, “content is more king than ever.”

If you're an actor or producer in Hollywood, it's hard to miss the flag Netflix has planted in Tinseltown. Its new 14-story tower is visible for miles in sprawling Los Angeles, topped by the company's red logo. The smell of popcorn greets visitors in the lobby.

Inside, Chief Content Officer Ted Sarandos is recruiting some of TV's most successful producers and writers. Since Netflix Inc. streamed its first original series "Lilyhammer" in 2012, the company has built one of the most valuable TV networks by buying shows from others. Now, with a $16 billion budget, Netflix aims to become the world's largest creator of entertainment, making programs just like current suppliers including CBS Corp.

Sunday's Emmy awards in Los Angeles offer Netflix a chance to burnish its credentials. The company has five programs nominated for top awards in drama and comedy, including the offbeat hit "Stranger Things," a low budget homage to Steven Spielberg and "The Goonies." The show is the first drama made in-house, Sarandos said in an interview, and a sign of more to come.

In recent weeks, Netflix has signed Shonda Rhimes, creator of ABC's "Grey's Anatomy" and "Scandal," to a long-term deal, hired an executive to develop original kids shows and bought a graphic novel publisher. Netflix Studios is producing about 75 percent of the company's new projects, according to Sarandos, the key architect of a lineup this year that includes 200 comedies, dramas, stand-up acts, kids shows and feature films.

"The old world was always a balancing act between money and creative freedom" said Chris Silbermann, Rhimes's agent at ICM Partners. "In today's world, it's possible to have both."

Sarandos, 53, first came to Hollywood as an executive for a video-rental chain -- nobody's idea of a mogul -- and joined Netflix in 2000. He's grown into the role and become a fixture in Hollywood, hosting political fundraisers with his wife Nicole Avant, the former ambassador to the Bahamas, at their home.

Sarandos spends much of his time on the road, signing deals with producers in Australia, Poland and Japan. In Hollywood, his primary job is hand-holding. When the temperamental creator of hit series meets with critics, Sarandos is there.

"Our part of the business is pretty high touch," he said. "People need to see your face a lot. People need to know you are interested in and engaged in their project."

Over the years, Sarandos' job has gotten easier. At first, no self-respecting creator or actor would work for a streaming service when they could win awards at HBO or make millions on a broadcast series. So Netflix made absurd offers. It pledged $100 million and made a two-season commitment for the David Fincher political drama "House of Cards" starring Kevin Spacey. Few TV networks order even one full season before shooting a pilot.

The show was a major success, as was the women's prison drama "Orange Is the New Black." Still, agents steered clients away from Netflix, fearful they'd never make as much money. The company doesn't disclose how many people watch its shows, a key metric in TV negotiations, and Netflix also demanded rights in perpetuity, limiting the value of reruns. "Seinfeld," the NBC hit comedy from the 1990s, has earned more than $3 billion in syndication.

But the hits and accolades kept coming for shows like "Daredevil," "Narcos" and "Master of None." Perhaps no show caught more people by surprise than "Stranger Things," a fantasy-horror series about a missing boy.

Creators Matt and Ross Duffer have said they were worried the show would fail because Netflix didn't market it. But it was an instant sensation, and many critics list its October return as the most anticipated show of the fall season.

With Rhimes, Netflix landed one of TV's most prolific producers. She's had a show on the air every year since 2005, when ABC first released "Grey's Anatomy." She's since made seven series for ABC and commandeered an entire night on the network's schedule. Yet having reached the highest heights at ABC, Rhimes also craved a new challenge, along with freedom from the constraints of broadcasting.

Sarandos, with a big smile and a big check, was ready.

The win had consequences. Days later, Disney said it would pull its movies from Netflix when their current deal expires at the end of 2018. Chief Executive Officer Bob Iger also said Disney would create its own streaming service in 2019.

As the flap shows, traditional media companies were eager to take the money Netflix paid for their shows yet slow to see the risk streaming posed to their golden goose, pay TV. Thanks to Netflix, consumers now expect to be able to watch shows where and when they want. Analysts forecast the company's sales will hit $11.5 billion this year and pass both CBS Corp. and Viacom Inc. in 2018.

Sarandos's shift from buying and licensing shows to making them in-house elevates the threat. The company has hired scores of staff from partners and rivals, and is being sued by 21st Century Fox for poaching employees.

Jeffrey Katzenberg, whose DreamWorks Animation was an eager partner with Netflix, gives the company high marks and calls Sarandos "a man of high integrity. They built their business in a thoughtful, considerate way." Yet Katzenberg also understands the rancor Netflix causes among media companies losing viewers to online TV.

While competing media companies now look more cautiously on Netflix, none are completely cutting ties. Disney is still makes Marvel TV shows for Netflix -- and gets paid handsomely. So do CBS, Fox and NBC. And Netflix won't stop licensing shows anytime soon. It can't yet make movies on the scale of Disney or the many animated series that DreamWorks Animation provided. It also needs to shop abroad for international audiences.

The biggest risk for Netflix is slowing growth in subscribers, who now exceed 104 million worldwide. The company needs to keep signups coming in to support its burgeoning budget. It continues to burn through cash and has regularly raised money to finance TV and movie-making despite pledges it will soon generate meaningful profit.

"The acceleration of content spend will start to moderate," Chief Financial Officer David Wells told investors at a conference this week.

For now, Netflix is spending money to make money, believing every new show will convince people to sign up. As Wells noted this week, Netflix is poised to become the first company to spend $20 million on a single episode of TV.

and elsewhere, that language and nudity were a factor in going with Netflix:

"I'm thrilled by the idea of a world where I'm not caught in the necessary grind of network television," Ms. Rhimes said. In addition, since Netflix doesn't have advertising, Ms. Rhimes doesn't need to worry about language and nudity. Netflix, she said, provides "larger creative freedom."

Other producers echo Ms. Rhimes's desire to be free of the demands of broadcast television. David E. Kelley, whose broadcast resume includes the hits "The Practice" and "Ally McBeal," has more recently produced for HBO and Amazon Prime and said he has no desire to go back to a broadcast or basic cable network.

Bloomberg and Chicago Tribune (and Fox) have boxed themselves out, similar to how Blockbuster didn't know how to evolve.